In the tape released on Thursday, he ridiculed the government's claim that it had restored peace in Swat, saying, "the army committed worst terrorism by killing innocent people in Swat".
"We do not concede defeat ... it was our tactical retreat and part of our strategy," he said.
"We are still active."
On the run
Fazlullah mounted a violent two-year campaign to enforce a stricter interpretation of sharia [Islamic law] in the northwest Pakistan district of Swat valley, until Pakistani troops launched a major offensive to drive out Taliban fighters from the region.
Fazlullah and his supporters are believed to have beheaded opponents, burned schools and fought against government troops during their campaign, which began in November 2007.
He has been on the run since the beginning of the army offensive in the districts of Buner, Lower Dir and Swat in late April, 2009.
Kamal Hyder, Al Jazeera's correspondent in Pakistan, said there was a propaganda element to the video.
"He [Fazlullah] has not been seen for a long time, his men have not been able to regroup in the Swat, Malakand region. This is a man on a back foot," he said.
"Now that the military is very much in control of the Swat Valley" suicide bombings are the only option for militants, as they lack the ability to mount successful conventional attacks on the Pakistani army, our correspondent said.
Major General Athar Abbas, a spokesman for the Pakistan army, told Al Jazeera that Fazlullah's followers were unlikely to launch an attack on Swat due to the heavy military presence and public support for the military operation.
"Fazlullah and his group have lost their space in Swat because of the atrocities and killings they carried out there," Abbas said.
"Also the militants have suffered huge casualties - many of them have been killed, arrested or fled the area.
"We have blocked their supply routes and there is strict checking of people going in and out of the valley."
Swat has been hailed as a success story in Pakistan's fight against the Taliban and al-Qaeda-linked fighters by local and US officials, who praised the offensive for apparently ending the local Taliban insurgency there.
|The battle in Swat was hailed as a success in Pakistan's fight against insurgency [AFP]
Mian Iftikhar Hussain, the information minister in Khyber Pukhtoon Khawa Province, told Al Jazeera that the video showed that the military was succeeding in restricting Taliban's fighters efforts in the area.
"They have become cowards and are now issuing such videos to overcome their defeat," he said.
"We together with the Pakistan security forces are ready to react any time they get any information against them. And such statements can't make any hurdle in their way."
For two years the Taliban paralysed much of the valley by promoting its repressive brand of sharia.
Many of the estimated two million people who fled have now returned to their homes in and around Swat and are trying to rebuild their lives, but skirmishes, threats and tensions have remained.
Fazlullah also criticised the government for recently holding a peace jirga (meeting) in Swat and "promoting vulgarity and obscenity".
He is a son-in-law of the pro-Taliban religious leader Sufi Muhammad, who secured a government deal to put three million people in the northwest under the sharia in February 2009.
The agreement later collapsed after Taliban fighters stormed several towns and the government responded by launching the military offensive.
Pakistan's northwestern region has become a stronghold for both al-Qaeda and Taliban fighters who fled Afghanistan following the US-led invasion that toppled the Taliban government in 2001.